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Tuesday, August 25, 2009
Do you have faith in the economy?
Consumer sentiment rose more than expected in August and expectations hit the highest level since the recession began, indications that Americans' pessimism about the economy may be lifting.
The housing sector also showed signs of life as a national measure of home prices posted its first quarterly increase in three years.
The New York-based Conference Board said Tuesday its Consumer Confidence index rose to 54.1 from an upwardly revised 47.4 in July. Economists surveyed by Thomson Reuters had expected a slight increase to 47.5.
Still, the index is well below 90, the minimum level associated with a healthy economy. Anything above 100 signals strong growth.
Economists closely monitor confidence because consumer spending accounts for about 70 percent of U.S. economic activity. Consumer sentiment — fueled by signs the economy is stabilizing — has recovered a bit since hitting a record-low of 25.3 in February.
Many analysts expect the economy to grow 2-3 percent in the current July-September quarter, spurred by a more stable housing market and the Cash for Clunkers program, which has boosted auto sales.
But economists worry that without healthier consumer spending, the recovery may weaken next year.
The housing slump and a weak job market have made consumers reluctant to spend. But the outlook for jobs is improving, the Conference Board said, with fewer respondents saying positions are "hard to get," and more claiming they are "plentiful."
Consumers' expectations for the economy over the next six months rose to 73.5 from 63.4 in July, the highest level since December 2007, when the recession began. The consumer confidence survey was sent to 5,000 households and had a cutoff date for responses of August 18.
Sal Guatieri, an economist at BMO Capital Markets, said the jump in the expectations index meant consumers likely will spend more in the months ahead.
"It won't be a smooth ride, but with consumer confidence now tracking higher, the groundwork for a sustainable recovery appears to be in place," he wrote in a note to clients.
The housing sector also received positive news. The Standard & Poor's/Case-Shiller's U.S. National Home Price Index rose 1.4 percent in the second quarter from the January-March period, the first quarterly increase in three years. Home prices, while still down almost 15 percent from last year, are at levels last seen in early 2003.
The reports, along with President Barack Obama's reappointment of Ben Bernanke as Federal Reserve chief, sent the financial markets higher. The Dow Jones industrial average rose more than 80 points in midday trading, and broader indices also gained.
Obama said Tuesday that his administration's $787 billion stimulus package, and the extraordinary efforts by Bernanke to pump trillions of dollars into the financial system, have helped turn the economy around.
"Our auto industry is showing signs of life," Obama said. "Business investment is showing signs of stabilizing. Our housing market and credit markets have been saved from collapse."
Jobs are a weak spot, however, and could limit future consumer spending if Americans remain concerned about layoffs or declining wages.
Still, the Labor Department reported earlier this month that the unemployment rate dipped for the first time in 15 months, and workers' hours and pay rose slightly in July. The unemployment rate slipped to 9.4 percent, from 9.5 percent, while July job losses slowed to a total of 247,000, the fewest in a year and a big improvement from June's 443,000.